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Market Share Dispersion Among Leading Firms as a Determinant of Advertising Intensity

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  • Michael S. Willis
  • Richard T. Rogers

Abstract

Previous advertising intensity models have failed to address adequately the rivalry effects of leading firms trying to protect and enhance the market shares of their brands. We argue that the relative degree of market share parity among leading firms in oligopolies is a crucial determinant of market advertising levels. This study presents a model that more thoroughly characterizes market structure by including the variance in the market shares of the top four firms along with the concentration ratio. This model is then tested using a unique 1987 data set of 58 well-defined U.S. food and tobacco manufacturing markets that used private data vendors for branded product market shares and media advertising aimed at household consumers. We find that industry advertising-to-sales ratios are highest in those industries with the highest price-cost margins, highest concentration, and those with equally-sized leading firms. Oligopolists seem unable to control advertising expenses as concentration increases and they likely overinvest in advertising rivalry when they have similar market shares.

Suggested Citation

  • Michael S. Willis & Richard T. Rogers, 1998. "Market Share Dispersion Among Leading Firms as a Determinant of Advertising Intensity," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(5), pages 495-508, October.
  • Handle: RePEc:kap:revind:v:13:y:1998:i:5:p:495-508
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    Cited by:

    1. Nelson Sá, 2015. "Market concentration and persuasive advertising: a theoretical approach," Journal of Economics, Springer, vol. 114(2), pages 127-151, March.
    2. Eiji Yamamura, 2015. "Is university sports an advertisement in the higher education market? An analysis of the Hakone long-distance relay road race in Japan," ISER Discussion Paper 0922, Institute of Social and Economic Research, Osaka University.
    3. Sizhong Sun, 2014. "Foreign Entry and Firm Advertising Intensity: Evidence from China," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(1), pages 79-97, August.
    4. Chang-Yang Lee, 2002. "Advertising, Its Determinants, and Market Structure," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(1), pages 89-101, August.
    5. Konrad, Kai A., 2007. "Strategy in contests: an introduction
      [Strategie in Turnieren – eine Einführung]
      ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
    6. repec:kap:iaecre:v:21:y:2015:i:3:p:287-298 is not listed on IDEAS
    7. George Geronikolaou, 2015. "On the Effect of Market Share Dispersion on New Firm Entry," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 21(3), pages 287-298, August.
    8. repec:eee:iepoli:v:40:y:2017:i:c:p:26-40 is not listed on IDEAS
    9. Luca Bonardi, . "Analysis of the Relationship Between Advertising, Concentration and Profitability in the United States Manufacturing Industry," Fordham Economics Dissertations, Fordham University, Department of Economics, number 2002.3.
    10. Joseph, Kissan & Wintoki, M. Babajide, 2013. "Advertising investments, information asymmetry, and insider gains," Journal of Empirical Finance, Elsevier, vol. 22(C), pages 1-15.

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